Western Digital 2008 Annual Report Download - page 70

awards that may be granted under the 2004 Performance Incentive Plan include stock options, stock appreciation rights,
restricted stock, stock bonuses and other forms of awards granted or denominated in the Company’s common stock or
units of the Company’s common stock, as well as certain cash bonus awards. Persons eligible to receive awards under the
2004 Performance Incentive Plan include officers or employees of the Company or any of its subsidiaries, directors of the
Company and certain consultants and advisors to the Company or any of its subsidiaries. The vesting of awards under the
Performance Incentive Plan is determined at the date of grant. Each award expires on a date determined at the date of
grant; however, the maximum term of options, stock appreciation rights and other rights to acquire common stock under
the 2004 Performance Incentive Plan is ten years after the grant date of the award.
As of June 27, 2008, the maximum number of shares of the Company’s common stock that are authorized for award
grants under the 2004 Performance Incentive Plan is 22.6 million shares. Any shares subject to awards under the prior
stock plans that are canceled, forfeited or otherwise terminate without having vested or been exercised, as applicable, will
become available for other award grants under the 2004 Performance Incentive Plan. The 2004 Performance Incentive
Plan will terminate on September 21, 2014 unless terminated earlier by the Company’s Board of Directors.
Employee Stock Purchase Plan
During 2006, the Company adopted the Western Digital Corporation 2005 Employee Stock Purchase Plan
(“ESPP”) whereby eligible employees may authorize payroll deductions of up to 10% of their eligible compensation to
purchase shares of the Company’s common stock at 95% of the fair market value of common stock on either the date of
grant or on the exercise date, whichever is less. The date of grant of each offering period is June 1st or December 1st,
except for the initial offering period, which began on December 15, 2005. Each offering period is 24 months and consists
of four exercise dates. If the fair market value of the common stock is less on a given exercise date than on the date of
grant, employee participation in that offering period is terminated and re-enrollment in the new offering period occurs
automatically. The Company’s ESPP operates in accordance with Section 423 of the Internal Revenue Code.
Stock-Based Compensation Expense
Effective July 2, 2005, the Company adopted SFAS No. 123(R), “Share-Based Payment” (“SFAS 123(R)”) using the
modified prospective method. SFAS 123(R) establishes the financial accounting and reporting standards for stock-based
compensation plans. As required by SFAS 123(R), the Company recognized the cost resulting from all share-based
payment transactions including shares issued under the Company’s stock option plans and employee stock purchase plans
in the financial statements. The Company expensed $18 million, $18 million and $21 million related to stock-based
compensation from stock options and ESPP shares in 2008, 2007 and 2006, respectively. As of June 27, 2008, total
compensation cost related to unvested stock options granted to employees and ESPP shares, but not yet recognized, was
$33 million and will be amortized on a straight-line basis over a weighted average period of approximately 2.4 years.
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WESTERN DIGITAL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)